Challenges for Indonesia’s Future

The Idul Fitri holiday in Indonesia has always been a time
for forgiving. From the State Palace in Jakarta to houses of
the elderly in rural villages, people are queuing to shake
hands with those they respect, to ask for forgiveness. It is a
wonderful tradition, in which people are rekindling their
relationship with their relatives.
But the festivities also remind us of failed government
policies. During the month of Ramadan, Indonesia has always
witnessed the seasonal increase of key commodity prices, as
demand soars but supply is constrained. The government’s
recent attempt to lower the price of beef, chili, onion and
other commodities fell flat and prices have stubbornly been at
record highs.
Hasn’t the government learned anything? Months after the beef
graft scandal emerged, there has been no sign that the
government, in this case the ministries of trade and of
agriculture, has been able to put its act together to tame the
soaring beef prices. This has raised suspicions that there is
foul play. Indeed, the Business Competition Supervisory
Commission (KPPU) has announced that it is now investigating
the beef trading practices.
The higher food prices indeed are the product of failed
policies. And as long as the government continues to rely on
ad-hoc policies of import measures to curb food prices, the
country will remain vulnerable to seasonal stints of wild food
price volatility.What is social welfare?
The heart of policy discourse in this country rests on the
presumption of what national social welfare is and how to
measure it. The political rhetoric being advanced in this case
is a populist one, namely to provide protection for domestic
producers, farmers or SMEs.
Yet students of Economics 101 are acutely aware that social
welfare is measured as consumer surplus, and the biggest
surpluses arise from open, competitive markets. Any deviation
from competitive equilibrium, be it in the form of inadequate
supply or from government intervention such as administered
quotas, will only result in greater benefit to producers — to
the detriment of consumers, in the form of higher prices and
lower consumption.
Our current problems can be traced back the famous Article 33
of our original Constitution of 1945, which emphasizes the
importance of production in our economic system, and puts the
control of key natural resources in the hands of state to
achieve “maximum social welfare.” It has never been made
explicit what this social welfare is, and it has since become
a contested terrain politically. The standard bearing of
populist argument has always been that social welfare is
equivalent to protecting the weak and underprivileged, in this
case farmers, SMEs and informal sectors, but not the poor as
consumers.
In the name of protecting local farmers, the ministries of
trade and of agriculture have imposed an ad-hoc quota regime,
in which import licenses are arbitrarily allocated with
administered prices. It doesn’t take a genius to figure out
that such arbitrary policies have created opportunity for
cronyism and rent-seeking. That is what’s been happening with
the beef scandal, and trade in other commodities, such as soy
beans.
But other areas of licensing and concessions are also rampant
with regulatory arbitrage. Coal and other mining concessions
are one such area. Radio frequency allocation — a critical
national resource — is another. The arbitragers in these cases
simply secured the licenses and then sold the concessions to
other investors and made a killing. Similar things happen to
the Java toll road projects, in which almost nothing has been
achieved a decade after the granting of the concessions.Competitive advantage
A few things deserve scrutiny to avoid the abuse of the
system. First, the awarding of licenses and concessions is to
be very selective. In the agricultural sector, soybean and
wheat are not tropical crops and as such Indonesia will never
have a competitive advantage in growing them. Therefore,
protecting soy and wheat farmers is simply misplaced.
Rice and sugarcane are a different matter. Yet, overzealous
protection and incentives to produce, such as what is
happening in Thailand today, has created over-production and,
more dangerously, over-dependence of Thai rice farmers on the
subsidy. So we need a measured dose of incentives to yield
optimal outcomes.
Secondly, open and transparent licensing is imperative.
Closed-door granting of concessions will only yield cronyism
and its attendant rent-seeking. In this regard, Trade Minister
Gita Wirjawan’s attempt to rationalize import quota and
licensing though open auction is on the right track.
One could only imagine if local governments would also use
open tenders to grant coal mining licenses; the current mess
in overlapping licenses would have been avoided, and the
potential for concession or license trading would have been
minimized.
Finally, the terms of any concession are of paramount
importance. In the case of toll road licensing, the
government’s position is very weak. There is practically no
exit clause, as there is neither penalty nor consequence
whatsoever if concession holders do not deliver or otherwise
breach their contract.Jokowi’s example
The current attempt by Jakarta Governor Joko Widodo to revamp
the way the MetroMini buses operate deserves our wholehearted
support. As it stands today, MetroMini is owned and operated
by thousands of owners-operators. Why thousands of licenses
were awarded was beyond anybody’s comprehension. But as a
result, standard operating procedures have been noticeably
absent. MetroMini drivers rarely have safety and convenience
in mind when they hit the road, terrorizing other motorists.
Worse still, enforcing discipline and rules — be it by police
or by owner-operators of the buses — is practically
non-existent.
Jokowi is now bringing the entire MetroMini operation under
one roof, with 1,000 new buses owned and operated by a local
state-owned company. Private ownership is still allowed, but
licenses are awarded through open auction. The term of the
license is 7 years and subject to constant monitoring and
evaluation of performance. All buses will be run under the
same best practices, from vehicle safety to the drivers’
conduct.
The MetroMini restructuring is a good example of avoiding
regulatory arbitrage and putting the welfare of consumers
above that of producers, in this case the old
owners-operators.Tackling the PPP fallacy
Another policy backwater is the drive to promote
Public-Private Partnerships. It is true that given the
structure of Indonesia’s fiscal structure today — with civil
servants’ salaries and fuel subsidies being a heavy burden —
there is only limited room for crucial infrastructure
investment. Add to this the increasing emphasis on education
(20 percent of the state budget), health care and other social
security provisions, and you’ll see that PPP simply is a
necessity for progress.
So far, however, Indonesia has had a dismal PPP record. Not
only have the toll road concessions run into trouble, the
water utility saga in Jakarta, in which foreign partners
pulled out, is another example. Two aborted oil refinery
projects in Java are also indicative of policy failures.
Infrastructure projects normally involve huge investment up
front, and a payback period of 25 years and longer. Legal and
regulatory certainty, therefore, is essential for structuring
a project and making it attractive for potential investors.
Our track record, in this case, is disheartening. Often the
government simply did not honor its commitments as stipulated
in a contract. The case of water utility in Jakarta is
typical, where the promised hike of water prices as stipulated
in the contract was simply ignored.
In another case, changes of government policy are affecting
the economics of the projects. Many independent power
producers are using the dollar as the currency for power
bought by state-owned utility Perusahaan Listrik Negara. This
makes perfect sense, since their investments were made in
dollars and the input fuels (gas, coal etc.) are also priced
in dollars. The enactment of a new law that stipulates that
all domestic transaction shall be in rupiah will definitely
change the power production landscape going forward.
The abandoned oil refinery projects point to another PPP
fallacy. Finance Ministry bureaucrats, in this case, were
myopically applying corporate finance considerations to
evaluate this very strategic and important project
economically. They assumed all investors are greedy at all
times, and in so doing so they ignored entirely the economic
analysis of the project. They focused more on profits and
losses of the refinery than on the broader economic benefits
of the project.
Given the above features and risks involved in infrastructure
projects, we have to accept the fact that government support,
in one form or another, is a necessary evil. Pretending that
there will be PPP without government support and commitment is
the greatest fallacy of all. The trick, as usual, is how to
deal with this necessary evil through standardized government
support, transparent processes of negotiation and adopting
best practices for future project contingencies. Our track
record in this area is disappointing, so we need a change in
mindset.
Back to Idul Fitri. It is a moment for remembering, for
reflection and for forgiving. And so it is time for a reality
check on our policy challenges.
Let’s forgive, but not forget, that we have plenty of hard
work ahead.Farid Harianto is an economist and an adviser to Vice
President Boediono. The views expressed here are his own.

The Jakarta Globe Editorial:

Independence Day Is Also a Call to
Action

The mark of success for any nation is how well its people are
doing economically, socially and morally. All of these factors
determine one’s living standards. And on all these fronts,
Indonesians are better off today than they were 15 years ago.
As the nation celebrates its 68th birthday, it can stand tall
in the community of nations. The country is a member of the
G-20, a group of the largest economies in the world; it is the
third-largest democracy in the world and a fast-growing
market. Its people are among the happiest anywhere.
As President Susilo Bambang Yudhoyono notes, the country’s
ethnic and religious diversity is one of its strengths. But
for us to leverage this strength, we must promote greater
tolerance and social harmony, which have been eroded in recent
years.
Indonesia, many citizens think, is now free, and its people
are also free. But looking around us, the country is still
held in bondage by a host of problems and challenges. These
include poverty, poor education, poor healthcare and lack of
infrastructure.
Addressing and solving these problems will take leadership,
commitment and resolve. It will require sacrifices and some
tough decisions which might lead to short-term pain.
On Independence Day, many people also remember those who have
fought and spilled blood for the country. The term “heroes”
calls to mind those who fought and won independence for the
nation nearly seven decades ago. But in truth, we need new
kinds of heroes today: individuals who can take the lead in
many diverse fields and have lives that younger Indonesians
can look up to as role models.
Independence Day is a time to celebrate the nation’s
achievements as much as it is a time to reflect on what lies
ahead. We have come far as a nation, but we still have a long
road ahead of us.

Opinion

Independence demands political
and economic unity

Indonesians will celebrate
their 68th Independence Day on Aug. 17. This year’s Independence
Day commemoration is occurring close to the spirit of Idul Fitri
festivities, which took place a week before.

We ought to be thankful for a mixture of two noteworthy matters:
celebrating the gratitude of Idul Fitri and expressing a mature
commemoration of the country’s freedom.

One of the chief stumbling blocks Indonesians are dealing with now
is the discrepancy between political advancement and economic
development. An Indonesian citizen knows that the unitary state of
the Republic of Indonesia is politically acknowledged across the
archipelago from Sabang to Merauke. This is a principal
declaration that Indonesia’s political unity is uncompromised in
people’s minds.

Yet the political accord becomes susceptible while the lion’s
share of economic growth and prosperity is unequally distributed
throughout the nation. Imbalances in infrastructure development,
limited access to education and small- and medium-sized
enterprises’ weak market penetration strategies across different
regions in the country, to mention just a few, increasingly
substantiate Indonesia’s obvious economic incongruity.

This challenging economic approach will slowly but surely put
political stability at stake due to regional dissatisfaction.

In an attempt to contextualize the very essence of liberty,
political and economic unity is then essential for subsequent
rationales. First, it is the key to impartial development leading
to central government legitimacy and widespread prosperity. It is
public knowledge that national development has been and is still
concentrating on Java. This island is densely populated on the
strength of economic attraction, as the saying goes: “Where there
is sugar, there are ants.”

While political integration is imposed nationwide by the
government, economic development remains focused on certain areas.
Prosperity is out of the reach by reason of economic injustice.

Additionally, such economic inequality is detrimental to
demographic effects prompting constant rural to urban migration,
movement of people from other parts of the country to Java, and a
periphery to center exodus. Indonesia needs affirmative action on
economic engineering that shifts economic improvement to
peripheral areas and outside Java. Endeavors to empower regions
for economic interest must crack down on comparative advantages
engaging in financial and managerial initiatives. Otherwise, they
are nothing more than politicians’ rhetoric.

Agriculture and creative industries could be remedies for
regionally economic intensification. They might grow to the full
providing local leadership is entrusted to entrepreneurs rather
than to career bureaucrats and political appointees. The Success
stories of Joko Widodo (former mayor of Surakarta in Central Java)
and Amran Nur (former mayor of Sawahlunto in West Sumatra) are
clear evidence of entrepreneurship-based local governance. They
fathom that independence is not simply a matter of political
freedom but is also inseparably associated with the public
well-being.

Second, political and economic unity is considerably significant
in terms of setting off a wave of nationalistic spirit. A massive
crisis of confidence in the ruling authority is due to a strong
emphasis on political slants when it comes to addressing public
issues. This is definitely in contradiction to an economic
approach. While the former defines people as being friend and foe,
the latter creates multiple friends and less rivals.

Elites’ political acts have failed to awaken public patriotism on
account of their interest in power sharing and political
ceremonies, such as solemn official speeches and flag ceremonies.
It does not mean, for example, that Indonesian citizens should no
longer participate in flag ceremonies. People should not be judged
as unpatriotic simply because they decide to enjoy the day doing
other things. Each has his or her own ways of honoring Indonesia.

It is through the economic language of prosperity that a sense of
patriotism turns into populism. Separatist movements in some areas
— Maluku and Papua — are attributable to the government’s
political suppression and economic exploitation, not just with the
separatists’ being less knowledgeable about Indonesia’s historical
unity. Populist nationalism, which is cushioned by economic
prosperity, cannot fully count on political procedures owing to
its narrow-mindedness and fragmented nature.

Third, political and economic integration conforms to Indonesia’s
competitiveness. Based on the World Economic Forum’s (WEF)
2012-2013 report, Indonesia’s competitiveness ranking fell to 50
out of 144 countries. Bribery and red tape, which have been
contributing factors to the decline, cannot be separated from the
soaring trend of politicized government offices and service
delivery. On the one side, politicization takes good-governance
out of the country’s bureaucracy. On the other, it sees corporate
culture exerting stress on economic yardsticks such as efficiency
and effectiveness, which are central to enhancing productivity and
igniting creativity.

One effort to increase the country’s competitiveness rests on the
authority’s political will to apply good governance principles in
the public sector. It is influential in paving the way for
burgeoning competitiveness in social relations. The desire for
competition should derive from a bottom-up approach so that
productivity and creativity morph into the populist domain.

This is particularly true as future networking is largely swayed
by people to people roles as opposed to government to government
relations at the international level.

This is the core essence of liberty that Indonesian people aspire
for. Long live the great Indonesia!

The writer is a lecturer at the Faculty of Cultural Sciences at
Andalas University, Padan

The state’s recognition of his services was given in his state
funeral at the Kalibata Heroes Cemetery in South Jakarta on
Sunday.

Taufiq was known as a high caliber-politician. He proposed
numerous ideas not simply for his party, but also for Indonesian
politicians more widely. This country is in his debt for at
least three of his ideas.

First, Taufiq was keen on preserving the four pillars of
Indonesian nationhood, particularly for younger generations.

The state and the academic community accepted his ideas on the
four pillars: Pancasila, the 1945 Constitution, the Bhineka
Tunggal Ika (Unity in Diversity) national motto and the concept
of the Unitary State of the Republic of Indonesia.

On many occasions, Taufiq said he expected youth to carry on the
state’s bid to develop the country based on the four pillars.

His strong commitment to the four pillars attracted public
esteem and earned him an honorary degree from Trisakti
University.

The award was not only his academic achievement, but also the
achievement of all MPR members. The MPR’s ongoing promotion of
the four pillars, therefore, has firm foundation.

Under his leadership, each year the MPR supported events that
renewed pledges of commitment to interfaith harmony.

To him, professing acceptance of Pancasila and pluralism had to
be implemented in practice, not just with rhetoric.

Second, Taufiq was noncompromising concerning freedom of
expression. He was of the opinion that expressing dissent was
not taboo. Celebrating his 70th birthday, Taufiq openly
criticized his wife, Megawati Soekarnoputri, former president
and chair of the PDI-P, for being surrounded by sycophants.

He considered his criticism important for the party’s survival.

Taufiq was known for not being a “yes man” just to please his
wife and the party. He was not ashamed of declaring that his
wife’s popularity and electability rates were less impressive
than those of Great Indonesia Movement (Gerindra) Party chairman
Prabowo Subianto, Golkar Party chairman Aburizal Bakrie and
President Susilo Bambang Yudhoyono.

It was no secret that Taufiq and Megawati often disagreed when
they discussed politics. While Taufiq was said to be expressive
and egalitarian, Megawati is regarded an introvert.

Their marriage never stopped Taufiq from criticizing his wife
and party. His outspoken nature was strongly rooted in his
endless fight to safeguard pluralism. He never treated people
according to their religion, ethnicity, family
or group.

Third, Taufiq always advocated the rejuvenation in leadership of
political parties. As a senior politician, he often stood out
from other politicians of his age as he often talked about
regeneration.

He once said the Presidency should be reserved for individuals
from younger generations. That is why he was always locking
horns with Megawati, telling the former president to drop her
presidential ambitions and let someone younger run in 2014.

Since 2010, Taufiq said young blood would dominate the party
structure for the next five years as part of its regeneration
program and a plan to rebuild its image.

He believed it would be a disaster if the PDI-P was associated
with the older generation.

Taufiq was acutely aware that regeneration was the biggest
challenge facing the party in gaining the support of younger
voters, since the public would see no improvement in the party
if it was continually led by the same figure.

With his preference for political regeneration, Taufiq set the
scene for young politicians to rise to secure spots on party
tickets. His pioneering style sought to remove the shadows of
older politicians who frequently resisted the political
regeneration of their parties.

The writer is a lecturer in the faculty of cultural sciences at
Andalas University, Padang.

Sufi Muslims Feel the Heat of Indonesia’s
Rising Intolerance

The plight of the Al-Mujahadah Foundation madrassa in southern
Aceh illustrates the perils of rising religious intolerance for
Indonesia’s religious minorities. The school, a private
institution that instructed dozens of students 8 to 25 years of
age in the principles of Sufism — devotion to more mystical
interpretations of Islam — lost its dormitory on July 5 due to
an apparent arson attack. Less than a month later, on Aug. 1,
the wall surrounding the school compound was destroyed in what
the school authorities believe was an act of vandalism. Police
are investigating the alleged arson attack, but say the school’s
wall collapsed due to faulty construction.
Suspicions that the school has been singled out for harassment
and intimidation aren’t unwarranted. In February, Aceh’s Ulama
Consultative Council (MPU), a government entity that advises the
government on Islamic affairs, demanded the school’s closure on
the basis that it was “strange” and its teachings “false and
misleading.”
The South Aceh regency government complied with that demand on
March 4 by ordering all students to leave the facility. It also
told the school’s top administrators not to receive guests in
their homes as a way to derail possible home-schooling efforts.
The same day, a mob of around 70 local Sunni villagers destroyed
the school’s front gate while police stood by. Now the school
sits empty.
The attack on the Sufi community in southern Aceh marks a
sinister new phase in the ongoing campaign of intolerance by
Islamist militant groups, such as the Islamic Defenders Front
(FPI). The targets of that intolerance and acts of related
violence have long been Christian groups, Shiite Muslims, and
the Ahmadiyah, as well as members of native animist faiths.
Islamist militant groups seek to justify violence by espousing
an interpretation of Sunni Islam that labels most non-Muslims as
“infidels,” and Muslims who do not adhere to Sunni orthodoxy as
“blasphemers.” The Jakarta-based Setara Institute, which
monitors religious freedom in Indonesia, reported earlier this
year that the number of reported incidents of violence related
to religious intolerance jumped from 244 cases in 2011 to 264 in
2012. Now the Islamist militants seem to have a new target:
Indonesia’s Sufi population.

It’s no mystery why Indonesia’s
Islamist militants have been emboldened to extend their acts
of harassment, intimidation and violence against the
country’s Sufis

Sumatra has become ground zero for this new wave of intolerance
and related violence against Sufis due to conservative Sunni
clerics who have branded Sufi congregations as “heretical
sects.” Unlike in other parts of Indonesia, Sumatra’s Sunni
clerics are less constrained by the relatively tolerant
Nahdlatul Ulama, Indonesia largest Muslim organization, which
accommodates hundreds of Islamic tariqah (Sufi sects) under its
umbrella, but which is relatively weak in Sumatra.
In September 2007, the Indonesian Ulama Council (MUI) in West
Sumatra issued a fatwa, an Islamic legal ruling, against the
local Al-Qiyadah Al-Islamiyah Sufi sect on the basis that they
were “heretics.” Police responded to the fatwa by arresting the
sect’s leaders. In May 2008, a West Sumatra court sentenced Dedi
Priadi and Gerry Lufthy Yudistira, the sect’s father and son
leaders, to three years’ imprisonment for “blasphemy.” Not to be
outdone, in April 2011 Aceh’s governor, Irwandi Yusuf, issued a
decree that banned 14 minority Islamic sects, including Sufi,
Ahmadiyah and Shiite groupings.
Expect more such intolerance: in March 2012, the West Sumatra
prosecutor’s office announced that the province hosted a total
of “25 misleading sects” that merited official censure.
It’s no mystery why Indonesia’s Islamist militants have been
emboldened to extend their acts of harassment, intimidation and
violence against the country’s Sufis. Human Rights Watch issued
a report in February documenting an alarming rise in religious
intolerance and related acts of violence. The government of
President Susilo Bambang Yudhoyono has proven unwilling to
confront the perpetrators, enforce existing law and judicial
decisions, and defend the rights to religious freedom embodied
in Indonesia’s constitution and international law.
Indonesian government officials and security forces have often
facilitated harassment and intimidation of religious minorities
by militant Islamist groups or stood by while militants
violently attacked religious minority communities. Such actions
are in part made possible by discriminatory laws and
regulations, including a blasphemy law that officially
recognizes only six religions, and house of worship decrees that
give local majority populations significant leverage over
religious minority communities.
Indonesian government institutions have also played a role in
the violation of the rights and freedoms of the country’s
religious minorities. Those institutions, which include the
Ministry of Religious Affairs, the Coordinating Board for
Monitoring Mystical Beliefs in Society (Bakor Pakem) under the
Attorney General’s Office, and the semi-official MUI, have
eroded religious freedom by issuing decrees and fatwas against
members of religious minorities and using their position of
authority to press for the prosecution of “blasphemers.”
Human Rights Watch warned in February that a failure by
Yudhoyono to act decisively against religious intolerance would
foster a form of “toxic osmosis” that would only encourage
Islamist militants to target new victims. Instead, Yudhoyono’s
spokesman dismissed such concerns as “naive” and insisted that
incidents of intolerance and violence by militant Islamist thugs
against Indonesia’s religious minorities were merely expressions
of “friction between groups.”
When I taught at the Ar Raniry Islamic Institute in Banda Aceh
in the 1990s, I got to know some members of the religious
minorities now under attack there. They deserve an end to the
hate campaigns.
In May 2013, Yudhoyono promised that his government “would not
tolerate any act of senseless violence committed by any group in
the name of the religion.” Indonesia’s religious minorities,
including the Sufis of Sumatra, need him to deliver on that
promise.Andreas Harsono is an Indonesia researcher at Human Rights
Watch.